The Power of Time & Compounding

No matter what your age, there’s no better time than now to invest for your future. Time is one of the most important factors in the potential success of your investments. This is because time and compounding may work together to build momentum for your investments.

Start investing early and let compounding help

With the Plan, starting early is one of the keys – the earlier you start, the more you can save. Even a small contribution has a chance to grow when time and compounding work together. Please remember that investing involves market risk, including the possible loss of principal.

What is compounding? Compounding is the process of continually adding any earnings you might receive to the amount you contribute (principal) and then reinvesting them to create more potential earnings. The more time your money has to earn, the more opportunity for compounding.

The Power and Time of Compounding

Amy invests $2,000 per year beginning at age 30 and then stops investing after 10 years ($20,000 total contribution). Although she’s no longer contributing to the account, she leaves her money in the account to grow for an additional 25 years.

Ben procrastinates and doesn’t start investing until age 40. He contributes $2,000 per year for a total of 25 years up until the day he retires ($50,000 total contribution).

Based on this hypothetical calculation, Amy invested $30,000 less than Ben, and based on our assumption she ended up with a much higher account balance at retirement. That’s because she gave her money 10 more years to grow.

This is a hypothetical compounding example utilizing a 7% rate of return and is not intended to predict or project investment results of any specific investment. Investment return is not guaranteed and will vary depending upon your investments and market experience. Assumptions do not include fees and expenses. If fees were reflected, the return would be less.

Investment return is not guaranteed and will vary depending upon your investments and market experience. Assumptions do not include fees and expenses. If fees were reflected, the return would be less.

Calculate the possibilities

Look at this chart for an idea of how even small deferrals can potentially add up – this example shows hypothetical account values at retirement based on an investor’s current age and deferral amount.

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You’re in Control With Deferred Comp

Smart choices can lead to goals met.

The chart below shows hypothetical account values at retirement.

Growth Period

Ending Balance

Deferral Per Pay

Paycheck Impact

Annual Pay Reduction

Accumulation 10 Years

Accumulation 20 Years

Accumulation 30 Years

$25

$18.75

$488

$9,304

$27,605

$63,607

$50

$37.50

$975

$18,607

$55,210

$127,214

$75

$56.25

$1,463

$27,911

$82,815

$190,821

$100

$75.00

$1,950

$37,214

$110,420

$254,428

$125

$93.75

$2,438

$46,518

$138,025

$318,035

$150

$112.50

$2,925

$55,821

$165,631

$381,642

$175

$131.25

$3,413

$65,125

$193,236

$445,249

$200

$150.00

$3,900

$74,429

$220,841

$508,856

$225

$168.75

$4,388

$83,732

$248,446

$572,463

$250

$187.50

$4,875

$93,036

$276,051

$636,070

$300

$225.00

$5,850

$111,643

$331,261

$763,283

$350

$262.50

$6,825

$130,250

$386,471

$890,497

$400

$300.00

$7,800

$148,857

$441,681

$1,017,711

$450

$337.50

$8,775

$167,464

$496,892

$1,144,925

$500

$375.00

$9,750

$186,071

$552,102

$1,272,139

$550

$412.50

$10,725

$204,678

$607,312

$1,399,353

$600

$450.00

$11,700

$223,286

$662,522

$1,526,567

$654

$490.50

$12,753

$243,381

$722,149

$1,663,958

$711

$565.00

$14,690

$267,416

$805,421

$1,887,812

$731

$548

$19,000

$274,647

$827,200

$1,938,859

This table shows the cumulative value of 26 biweekly deferral amounts over 10, 20, and 30 years, assuming a compound annual rate of 7% and a 25% federal tax rate, for a single person with an annual salary of $38,000 and one deduction for federal tax purposes. Actual investment returns will vary from year to year, and the value of your account after the specified periods of years shown in the table may be less or more than the amounts shown. This illustration is hypothetical and is not intended to serve as a projection of the investment results of any specific investment. If fees and expenses were reflected, the returns would have been less.

Waiting may have a big impact – Experiment with this calculator to see how waiting to invest could affect investments. See how various contribution amounts could affect results in the future.

Chart assumptions: Biweekly deferrals, 25% tax rate for paycheck impact, 7% annual rate of return. This hypothetical illustration is not intended to predict or project investment results. It does not assume taxes, fees or account withdrawals during accumulation; if it did, results would be lower. This chart is not intended to project the performance of your Plan account. Investments involve market risk, including the possible loss of principal. Actual investment results will vary depending on your investment and market experience. Income stream durations and amounts are not guaranteed.

Get the help you need

The New York State Deferred Compensation Plan is a State-sponsored employee benefit for State employees and employees of participating employers.

Our Mission: A voluntary retirement savings plan that provides quality investment options, investment educational programs and related services to help State and local public employees achieve their retirement savings goals.

Account Executives are Registered Representatives of Nationwide Investment Services Corporation, Columbus, OH, member FINRA. Information provided by Retirement Specialists is for educational purposes only and not intended as investment advice.